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With 2008 fast approaching, it’s time to start placing our bets for sectors that will outperform. And while I think commodities like gold, silver and oil will continue to do well, there is another natural resources market that many investors are ignoring — the bull market in agriculture.
Back in September, I told you about the rip-roaring potential of agriculture-related stocks. I even published a special report called “6 Stocks and 1 ETF to Ride the Agriculture Boom.” Anyone who acted on my recommendations in that report should be especially cheerful this holiday season. The model portfolio of that report is up more than 30% through the end of last week, while the S&P 500 was down 2.9%!
But Make No Mistake:
The Agricultural Bull Market
Has Just Gotten Started!
A recent study by AIG, the world’s largest insurer, showed that agriculture investments linked to commodity indexes may climb by $10 billion next year. That’s TWICE the rise in investment we saw this year.
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Agriculture Boom
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All positions added end of day 09/13/2007
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||
| Name |
Open Gain or Loss
|
Percent Change
|
| Stock #1 |
+$212.00
|
+12.41%
|
| Stock #2 |
+$3,905.00
|
+44.09%
|
| Stock #3 |
+$3,348.00
|
+12.26%
|
| Stock #4 |
+$4,462.00
|
+50.26%
|
| Stock #5 |
-$238.00
|
-3.58%
|
| Stock #6 |
+$1,761.00
|
+18.12%
|
| Fund |
+$1,106.00
|
+26.40%
|
| TOTALS: |
+$14,556.00
|
+30.81%
|
A large part of that dramatic increase is due to surging demand for agricultural commodities of all types — from wheat to cotton to sugar.
Let’s start with wheat. Forecasts for global wheat stockpiles are getting worse every month. In fact, the USDA now expects the 2007-2008 stocks to drop to a SIXTY-YEAR-LOW before the next harvest begins in June!
Why? Because weather and rising demand are putting the squeeze on supplies worldwide. About 110.1 million tons of wheat will be in storage around the world on May 31, down 11% from a year earlier, the USDA said.
Drought is hammering crops in Canada, Europe and especially Australia, which is experiencing the worst drought in 1,000 years!
Meanwhile, a recent freeze hurt plants in Argentina. Excessive rain also reduced yields in the U.S., France and Germany. According to the USDA …
- Australia’s production is pegged at 13 million tons, with exports forecast at 8 million, down a full 11% from forecasts made just a month ago.
- Canada will produce only 20.1 million tons of wheat by May 31, down from November’s estimate of 20.6 million tons.
- Growers in Argentina will harvest 15 million tons, down 7.8 percent from the previous forecast.
- Here in the U.S., stockpiles will fall to 7.62 million metric tonnes, or 280 million bushels. That’s a whopping 10% less than was predicted last month.
This is all laying the groundwork for higher wheat prices next year, and that is very bullish for U.S. farmers. After all, America is the world’s biggest wheat exporter.
| Internal Sponsorship |
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U.S. Labor Department Reports … In November …
This is just the beginning of the loss in buying power I’ve been warning you about! Here’s how to protect and multiply your wealth as inflation sinks its teeth into the U.S. economy … |
Plus …
The Outlook for Soybeans
Is Just As Bullish!
Wheat was only the fourth-biggest U.S. crop in 2006, valued at $7.7 billion. Soybeans are an even bigger cash crop, and prices are soaring because of adverse weather and stunning demand growth.
It’s too dry for giant soybean producers in Brazil and Argentina, and China is suffering a killer-drought in its traditional soybean-growing lands. As a result, China’s soybean imports are expected to grow 9.6% annually.
China is importing more agricultural products of all types. The Asian tiger’s agricultural product trade gap hit $2.97 billion during the first nine months of the year, rising 29.2% from the same period in 2006.
Why? Because China’s domestic demand is growing relentlessly as 1.3 billion people get richer and eat more and better food.
Argentina is China’s biggest supplier of soybeans, but the U.S. does pretty well. That’s why U.S. soybean exports are up 7.6% this year and soybeans are trading near a 34-year high.
Looking ahead to 2008, Goldman Sachs says soybeans may lead the way higher for agricultural prices thanks to adverse weather, lack of acreage and rising demand for biofuels. In fact, Goldman raised its 12-month price forecast for soybeans by 61%!
The Agricultural Bull Market Is
Turning into a Stampede!
U.S. sales of corn and cotton are also rising quickly. And so are prices for these products. Ditto for milk items like cheese and milk powder. Their prices have doubled in the last year.
Just look at my chart of agricultural prices as measured by the Goldman Sachs Commodity Index. As you can see, it started a steep acceleration in 2007 and just broke through overhead resistance.
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Translation: It’s full speed ahead for prices!
And the raging debate of “food vs. fuel” is threatening to send prices even higher. Let me explain how …
Nationwide, 134 ethanol refineries now have the capacity to produce 7.23 billion gallons of the fuel per year. Another 77 plants under construction will boost the nation’s ethanol production capacity to 13.5 billion gallons. But the government-mandated target keeps going up — it’s now 35 billion gallons by 2017.
Even with increasing yields, that’s at least another 30 million acres of corn that will have to be set aside for ethanol production. Plus, some members of Congress want to raise the amount of ethanol mixed into gasoline to 60 billion gallons by 2030.
Already, existing and under-construction refineries will gobble up half the projected U.S. corn harvest!
Now, maybe we’ll use alternative crops for ethanol down the road. But the other leading raw materials, or feedstocks, for producing biofuels are also agricultural products like sugar and vegetable oils.
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That tells me that there are plenty of agriculture plays for the next generation of energy — and more places you can invest to reap a bumper crop of returns.
Bottom line: With ethanol production soaring and countries like China and India lining up to pay good money to eat our lunch, the upward trend in agriculture prices should continue in 2008.
How You Can Reap Your Own
Whirlwind of Agriculture Profits
It’s getting easier to invest in agricultural commodities all the time. For example, Barclays just introduced the iPath Dow Jones-AIG Livestock Total Return Sub-Index (COW).
And in October, commodities guru Jim Rogers put his name behind an agriculture exchange-traded note (ETN), the awkwardly-named ELEMENTS Rogers International Commodity Agriculture (RJA).
ETNs are simply debt-linked products that trade like ETFs. Some investors might get better tax positioning from them. One caveat — remember that ETNs are underwritten by banks like Barclays, so if the bank defaults, the ETN could implode. It’s a small risk, but I just wanted to point it out.
There’s also the granddaddy of agricultural ETFs, the PowerShares DB Agriculture (DBA). It’s up 29% so far this year!
Of course, as I mentioned earlier, the portfolio of stocks I recommended in my agriculture report, “6 Stocks and 1 ETF to Ride the Agriculture Boom,” is up more than that in just three months!
Past performance is no guarantee of future returns, but I think the stocks in that special report have plenty more room to run. If you want your own copy, call 1-800-291-8545 or click here.
Good luck and good trades,
Sean
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, Tony Sagami, and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, Julie Trudeau, and Dinesh Kalera.
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